Metals, engineering sector continues to be under pressure – Seifsa
The contraction in the metals and engineering sector is worsening, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) warned on Thursday.
Speaking after the release of production numbers by Statistics South Africa, Seifsa chief economist Henk Langenhoven said it was very worrying that production in the sector fell by nearly 4% in August, compared with July this year, and by 8%, compared with the same period last year.
Production data for the first eight months of the year showed a 1.4% decline and a 1.8% decline over the 12-month period ending in August.
Both readings were worse than in July.
Further, Seifsa indicated that confidence indicators also pointed to tougher conditions ahead. “Although the Bureau for Economic Research’s (BER’s) third-quarter manufacturing survey revealed a slight improvement in confidence for manufacturing in the third quarter, the expected business conditions in 12 months deteriorated markedly,” it noted in a statement.
This was in line with the monthly business activity subindex of the Purchasing Managers Index, which declined further in September. This was supported by the BER’s overall business confidence index, which showed that sales of intermediary goods, including chemicals, basic metals and metal products, as well as capital goods, such as transport and machinery and equipment, contracted in the third quarter.
“This picture was consistent with our warning that these indicators pointed to worse production numbers for August and, almost certainly, for September as well. Anecdotal evidence from Seifsa members in this regard is most disturbing,” Langenhoven added.
Further, wild fluctuations in performance among the different subindices were still evident when comparing August with August 2014.
A similar comparison between August and July had revealed an identical problem. Only rubber, plastics and general machinery production improved during the month.
Further, 12-month seasonally-adjusted comparisons showed more consistent results, although they also varied from a 3.7% improvement in electrical machinery and equipment, to a decline in nonferrous production of 6.8%.
Langenhoven added that, read in conjunction with the lack of confidence reflected in several indicators, the latest data for the metals and engineering sector meant that a lower turning point was not yet in sight.
“There is renewed uncertainty about international economic recovery, with the International Monetary Fund warning about lower growth and vulnerability of commodity-dependent and undiversified economies. South Africa’s mining production was 3.3% lower over the last three months compared with the previous three months (and the coal miners are on strike), and domestic auto[mobile] sales have deteriorated further. Construction activity has not been encouraging either,” he lamented.
Langenhoven elaborated that higher local content in domestic procurement by the public sector could help to turn the situation in the metals and engineering sector around.
“However, it is very disturbing to hear of contracts being awarded to Indian and European suppliers when capacity exists locally,” he pointed out.
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